Just 23% of savers have used their annual Isa allowance so far this tax year, with only a further 11% planning to do so before the April 5 deadline, according to Halifax.
This leaves 66% of people failing to make the most of the allowance, under which they can save up to £7,200 a year into a stocks and shares Isa, or up to £3,600 into a cash one and the balance of the £7,200 into a shares one.
More worryingly however, despite the benefits of saving into an Isa, many consumers remain ignorant about the product, Halifax found.
More than three-quarters of people did not know how much they could invest in an equity Isa each year, with more than half confusing the equity Isa allowance with the cash one.
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The popularity of Isas has also been increasing since they were first launched in 1999/2000, with 14.7 million of the accounts having money paid into them last year, up from 9.3 million nine years earlier.
But there are concerns that consumers may not bother to use their Isa allowances during the coming year due to the current low level of interest rates and the problems in the stock market.
However, despite that, Jo Langenhan, Isa expert at Which? urged savers not to miss out: ‘Make the most of your tax-free allowance.
‘It makes sense to use your tax-free cash Isa allowance before putting money into a taxable savings account.’
Impact of interest rates on Isas
A higher-rate taxpayer needs to earn 1.67% on their savings in a taxable account just to equal every 1% they earn through an Isa, while a basic-rate taxpayer would have to earn 1.25%.
As a result, a higher-rate taxpayer would have to find a rate of 5.01% on a normal savings account to equal an Isa rate of 3% – not easy in the current market, though the current top three Which? Best Buy taxable savings accounts are all paying over 3%.
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